The International Chamber of Commerce (“ICC”) generally conducts revisions every 10 years; the new revision of the ICC, known as “INCOTERMS 2010” have been developed as a result of a review of current shipping practices and trends in an effort to keep up with the rapid expansion of international trade. The new trade terms became effective as of January 1st, 2011.
The ICC recommends using Incoterms 2010 after year 2011, however, according to the ICC, parties to a contract of sale can agree to use any version of Incoterms. All contracts made under the previous version of Incoterms remain valid even after 2011.
It is important, however, that if the parties to a contract of sale wish to incorporate specific Incoterms, to clearly specify the chosen version; “Incoterms 2010” rather than just “Incoterms“, so as to avoid any subsequent dispute as to which set of rules applies.
Parties to a contract must understand how the Incoterms 2010 differ from different versions of Incoterms in order to safeguard their transactions.
Let’s take an example from the Risk Transfer involved in the shipping of goods; the transfer of risk can vary depending on the chosen terms and therefore it is imperative that parties clearly understand the terms which will indicate at what point their liabilities begin and end.
For Incoterms 2000, FOB (Free on Board), means that the seller delivers when the goods pass the “ship’s rail” at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point (the ship’s rail). When parties fail to understand the intricacies of the ship rail concept, conflicts can arise.
The confusion surrounding the concept of delivery being effected as the goods pass the ship’s rail has never been totally laid to rest, as demonstrated by case law spanning the past three decades.
Today, it seems that we have better options. However, these options are not so familiar to the lay-man and so it is important for parties to international trade transactions to consult legal counsel for proper interpretation.
Pursuant to Incoterms 2010, for terms FOB (Free on Board), CFR (Cost and Freight) and CIF (Cost, Insurance and Freight), reference to the “ship’s rail” has now been deleted and goods are regarded as having been delivered as soon as they are “on board” the vessel. This means that under FOB (Free on Board) as an example, the buyer has to bear all costs and risks of loss of or damage to the goods as soon as they are on board the vessel.
We are of the view that with the use of Incoterms 2010, there will be less ambiguity in regards to the concepts of risk transfer and delivery in shipping law, and in many other contractual terms.